Hertz Gets Crushed after “Even Worse than Expected” Loss

#Carmageddon and Uber did it. For Carl Icahn, it just doesn’t let up.

Shares of Hertz Global Holdings plunged 18% in late trading on Monday to $12.25 after it reported another fiasco quarter, missing even the terribly low analysts’ expectations.

On Sunday I postulated: “Expectations for Q1 are so low that it will be hard to report ‘worse than expected’ numbers.” But buffeted by all sides, Hertz managed unexpectedly to pull it off.

Global revenues in the first quarter fell 3.4% year-over-year to $1.9 billion. In the US, revenues fell 3.8% to $1.35 billion.

Its “total revenue per unit per month,” a key industry metric, fell 5% globally to $889. In the US, it fell 8% to $928.

Despite the deteriorating revenue metrics, the average number of vehicles in the fleet rose 4% to 478,000 in the US and 2% internationally to 150,400. More vehicles translate into higher costs.

On the revenue side, Hertz is getting hammered by rideshare companies. Corporations and non-expense-account tourists are shifting their ground transportation spending to rideshare companies, particularly Uber, from taxis and rental cars. Here are the numbers that I pointed out yesterday.

On the expense side, Hertz is getting hammered by declining used vehicle values: Depreciation expense – the way a rental car company tries to align the value of its fleet with reality – jumped 14% to $701 million globally. In the US, it soared 19% to $499 million. In the US per unit per month, net depreciation jumped 15% to $348.

Depreciation is a non-cash event. But when the vehicle is sold at auction, the difference between the original cost of the new vehicle and the proceeds from the sale becomes a cash event. So yes, in the end, depreciation should parallel the cash expense. But the timing may be different.

For all its troubles, Hertz booked a net loss of $223 million in the first quarter, up from a net loss of $51 million a year ago.

Investors have been fleeing. And shares are now down 77% from their high last July, a month after the spinoff of its equipment leasing unit, which split the company and its shares in two. So these shares have been around for less than a year.

Compared to the wipe-out of November 9, this afternoon’s plunge is practically tame: back then, its shares plummeted 52% in one fell swoop to $17.20. Carl Icahn, who’d been hyping and buying these misbegotten shares all along, bought another 15 million shares during that plunge. He has lost money with relentless brutality. If he still owns the shares, he took another hit just now. But then he might consider it just another buying opportunity.

Hertz also has debt problems – and that might worry bottom fishers and “buying opportunity” seekers. It is junk-rated and had $14 billion in debt at the end of Q1, including “net vehicle debt” of $9.9 billion. It has a wave of bond maturities coming next year. It must be able to sell new bonds or talk a bank into lending it more money in order to redeem the maturing debt. It must be able to do so at survivable rates.

But some of its deteriorating metrics have already breached debt covenants, and it has been forced to negotiate with its creditors to amend the covenants to avoid technical default. This tango will only speed up.

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Nice deals though. Rented a Hertz RAV4 for $100 for 4 days, unlimited miles. Put 1400 miles on it. Spent a lot more on gas than on the car. Thank you Hertz shareholders.

jest

May 9, 2017 at 1:29 am

Wow that’s a good idea! Shoot, I am gonna do that too! I need to take a trip! $100 forsure!~ Unlimited miles ~ forsure ! I’ll even do more than 1400 miles ..I’m sure~hehehe

Guido

May 8, 2017 at 7:29 pm

Hi Wolf,
Thank you for both the Sunday article and this one. Thanks to your Sunday piece, I became aware of Hertz’s earnings and when ZH carried them shortly before yours today, I was struck by the fact that they did worse than expected; I remembered what you postulated and this was why the ZH headline registered immediately.

I learnt a lot.

marc cooper

May 8, 2017 at 7:30 pm

Rent a hertz and then ise it as an Uber

Doug

May 20, 2017 at 7:28 am

You can’t…Uber will only let us use Enterprise (I am an Uber driver, and that’s how it is here in San Diego, anyway). I wanted to use Hertz, because when I was between cars 3 1/2 years ago, they threw me a HELL of a good deal. Uber told me, use any company other than Enterprise and your account gets deactivated. So, after finding out the hard way that not all Enterprise outlets here will even RENT to Uber drivers, I had to go to an outlet about 20 miles from my place. And would Enterprise give me a ride out there to get my rental car? No, they said. I asked why. The guy on the phone said–quoting here–“Because we can’t be driving all over San Diego county to pick up ride-share drivers.” I wanted to tell him what I thought about that, but kept my pie-hole shut because I had no choice but to do business with them. And what did I end up paying? I was told that the minimum rental period was for one week (even if my car is repaired before then, I’m stuck with the rental for 7 days), and with their “Quick-Start Fee” (???) & other fees & tax added on, it came up to $315 for a week, plus a refundable $350 deposit. Ask any Uber or Lyft driver who (like me) does this as a full-time job how easy it is to come up with $665 in spare cash on our pay scale, and you’ll most likely get the same answer from everyone. This should paint a pretty accurate picture of why the car rental industry apparently hates us…why we, as hard-working stiffs, get treated like 2nd-class citizens, and why OUR money evidently isn’t quite as green as “regular customers.”

James R. Chaillet, Jr., MD

May 8, 2017 at 8:16 pm

Here’s a thought. A Yahoo Finance writer recently opined that Uber is at risk in the future world of self driving cars because it lacks expertise in the area of vehicle maintenance and ownership. Perhaps, in the not too distant future, Hertz’s salvation lies in a hookup with Uber or Lyft.

BoyfromTottenham

May 8, 2017 at 9:10 pm

Hookup with Hertz, or a buy-out?

MC

May 9, 2017 at 5:22 am

The vast bulk of McDonald’s restaurants are operated by franchisees, which may range from a small firm running just two restaurants to huge companies running over 500 locations throughout several countries.

The chances of Uber adopting a similar model for its future autonomous driving fleet (assuming they survive their own debt load) are extremely high as it effectively removes the bother of the day to day running of a car fleet, leaving them free to concentrate on the most profitable part of the business.

Willy2

May 8, 2017 at 9:05 pm

– Hertz (HTZ) was at ~ $ 50 in july last year and now at ~ $ 14. OMG !!!

Hertz customer service went down the tubes 10 years ago.. I avoid them like the plague. companies reap what they sow.

Bookdoc

May 8, 2017 at 11:33 pm

Agreed-they were number one for too long and lost sight of what got them there. I have had better luck with Enterprise . They’re not perfect but they just seem to “try harder” (yes, I know that wasn’t their slogan).

Alessio

May 9, 2017 at 11:48 am

9 May 2017

Hertz Shares Plunge on Wide Earnings Miss (Shares were off more than 20% midmorning before regaining ground)

Screw Hertz. I rented from them for the first time in 30 years last month and it will be another 30 years before I rent from them again.
Showed up a day early to pick up my car. “That will be an additional $700 for the extra day”. “If you come tomorrow like your reservation says, we can get you on your way at 8am”.
Show up at 8 am. “Sorry, your reservation time states a noon pickup. We can’t get you a car until noon.” So we sit in the office for four hours and then leave.
Can you imagine the gall to charge $700 EXTRA to pick up a car a day early? I could see if they said they didn’t have a car available…but they obviously had a number of cars.
Customer Service? NOT. I’ll never use them again.